Canadian personal finance glossary

87 terms in plain English, from ACB to Yield. Every definition is written the way it's used in practice, not the way a bank brochure defines it. Each entry has its own link.

A

Adjusted cost base (ACB)

The total you paid for an investment, including commissions, averaged across every purchase of the same security. Reinvested distributions increase it. Your capital gain is proceeds minus ACB minus selling costs, so an ACB tracked badly means tax paid twice on the same money. See Lesson 6.1.

Amortization

The total length of time to repay a mortgage in full — usually 25 years in Canada. Not the same as the term, which is the length of your current contract. See Lesson 3.3.

Annuity

A contract converting a lump sum into guaranteed income for life. Not an investment but insurance against outliving your money — the one risk a portfolio cannot solve on its own.

Asset allocation

How your portfolio is divided between stocks, bonds and cash. It explains far more of your long-run outcome than which specific funds you choose.

Asset location

Which account holds which asset. Placing interest-bearing assets in registered accounts and US dividend payers in an RRSP produces extra after-tax return with no extra risk. See Lesson 6.2.

Attribution rule

A tax rule that taxes income in the hands of the person who provided the funds rather than the person who holds them. Applies to spousal RRSPs withdrawn within three years of a contribution, and to money gifted to a spouse and invested.

B

Basic personal amount

The amount of income you can earn before paying federal or provincial tax, delivered as a non-refundable credit. Federally $16,452 for 2026; $12,989 in Ontario.

Beneficiary

The person named to receive an account or policy on your death. On a TFSA, a beneficiary receives the value and the account closes — unlike a successor holder, who takes the account over intact.

Bid-ask spread

The gap between the highest price a buyer will pay (bid) and the lowest a seller will accept (ask). You buy at the ask and sell at the bid, so the spread is a real transaction cost with no line item — much larger on thinly traded securities.

Bond

A loan to a government or company that pays fixed interest and returns the principal at maturity. Bond prices fall when interest rates rise.

C

Canada Education Savings Grant (CESG)

The federal grant paid into an RESP: 20% of contributions to $500 per child per year, $7,200 lifetime. Contributing $2,500 a year captures the full annual grant.

Canada Learning Bond

Up to $2,000 paid into an RESP for children from lower-income families with no contribution required. Chronically unclaimed.

Canada Pension Plan (CPP)

The contributory federal retirement pension. Maximum at 65 is $1,507.65 a month for 2026, but the average for new beneficiaries is $925.35. Plan with the average.

Capital gain

The increase in an investment’s value between purchase and sale. Only 50% is included in taxable income, and only when you sell — so unrealised gains compound tax-deferred.

Capital loss

The decrease in value when you sell below your ACB. Losses offset capital gains only — never salary or interest — and carry back three years or forward indefinitely.

CDIC

The Canada Deposit Insurance Corporation, which insures eligible deposits at member institutions up to prescribed limits. It covers savings accounts and GICs, not investments.

CMHC insurance

Mortgage default insurance, required when your down payment is under 20%. It costs 2.80–4.00% of the loan, is normally added to the balance, and protects the lender, not you.

Compound interest

Returns earning returns of their own. The effect is almost flat early and steep late, which is why the years you cannot get back are the early ones. See Lesson 1.2.

Contribution room

The amount you are permitted to put into a registered account. TFSA and RRSP room accrue automatically; FHSA room only begins once you open the account.

Correlation

How closely two investments move together. Diversification works only to the extent that holdings are imperfectly correlated — and correlations tend to rise in crises.

Couch Potato

A passive strategy: buy a fixed, diversified allocation, contribute on schedule, rebalance occasionally, ignore forecasts. One-ticket asset-allocation ETFs compressed it into a single purchase.

Credit utilisation

Your balance owing as a share of your available credit, and roughly 30% of your credit score. Keep it below 30% and ideally below 10% — measured on the statement date, not the due date.

D

Deemed disposition

A tax event where you are treated as having sold an asset without an actual sale — most importantly at death, when an RRSP or RRIF becomes fully taxable income unless it rolls to a spouse or dependant.

Diversification

Spreading investments so that no single company can seriously damage you. It removes idiosyncratic risk, which pays you nothing, and leaves systematic risk, which is the source of your expected return.

Dividend

A cash payment from a company to its shareholders out of profits. Canadian eligible dividends receive a gross-up and tax credit; foreign dividends receive neither.

Dividend tax credit

A credit that offsets corporate tax already paid on Canadian dividends. It makes eligible dividends the most lightly taxed income at low and middle incomes — and is entirely wasted inside a TFSA or RRSP.

Dollar-cost averaging (DCA)

Investing a fixed amount at regular intervals. Investing a lump sum immediately has historically beaten spreading it out about two-thirds of the time, but DCA is easier to actually follow.

Drift

The gradual movement of a portfolio away from its target allocation as assets grow at different rates. Left alone, a 70/30 portfolio becomes far riskier than intended.

DRIP

A dividend reinvestment plan, which automatically buys more units with distributions. Most Canadian brokers offer synthetic DRIPs that purchase whole shares only.

E

Educational Assistance Payment (EAP)

The portion of an RESP withdrawal made up of grants and growth. Taxable in the student’s hands, where the basic personal amount and tuition credits usually reduce the bill to almost nothing.

Eligible dividend

A dividend from a Canadian public corporation, grossed up 38% and then reduced by the dividend tax credit. At low incomes the effective rate can be negative.

Emergency fund

Three to six months of essential expenses held in cash, sized by income stability. Never in equities, because emergencies correlate with the downturns that would have halved it.

Enterprise value

The cost of buying an entire business: market capitalisation plus debt, minus cash. Used in valuation rather than personal finance, but worth recognising.

ETF (exchange-traded fund)

A fund that trades on an exchange like a stock and typically tracks an index. Broad Canadian-listed index ETFs charge roughly 0.05–0.25% a year.

F

FHSA (First Home Savings Account)

The only Canadian account that is tax-deductible going in and tax-free coming out for a qualifying first home. $8,000 a year to $40,000 lifetime. See Lesson 2.3.

Foreign tax credit

A credit for tax withheld by another country, offsetting Canadian tax on the same income. It works only where Canadian tax is payable — which is why US withholding is unrecoverable in a TFSA.

G

GIC

A guaranteed investment certificate: a fixed rate for a fixed term. Cashable GICs can be redeemed early; ordinary ones cannot, which disqualifies them for an emergency fund.

GIS (Guaranteed Income Supplement)

A non-taxable benefit for low-income OAS recipients, reduced by roughly 50 cents for every dollar of other income. RRSP withdrawals reduce it; TFSA withdrawals do not.

Gross-up

The mechanism that inflates a Canadian dividend before tax is calculated, approximating pre-corporate-tax profit. It raises your reported net income, which matters for the OAS clawback and other income-tested benefits.

H

Home Buyers’ Plan (HBP)

Lets a first-time buyer withdraw up to $60,000 tax-free from an RRSP for a home, repayable over 15 years. Stacks with an FHSA on the same purchase.

I

Idiosyncratic risk

Risk specific to one company — a scandal, a failed product, a fire. It carries no expected return, so diversifying it away is genuinely free.

Index fund

A fund that holds all the securities in an index rather than selecting them. Cheap by design, and over ten-year periods most active funds fail to beat their index after fees.

Inflation

The rate at which prices rise and money loses purchasing power. At 2.5%, $100,000 held in cash buys $47,674 worth of goods after 30 years.

Intestate

Dying without a valid will, leaving provincial formulas to decide who inherits. In several provinces including Ontario, a common-law partner receives nothing automatically.

Investment Policy Statement (IPS)

A one-page document written while markets are calm, stating your goals, allocation, contribution plan, and exactly what you will do when markets fall. See Lesson 5.3.

L

Limit order

An instruction to buy or sell only at a specified price or better. Always preferable to a market order on thinly traded securities, where a market order can fill far worse than the quoted price.

Liquidity

How easily an asset can be sold at a fair price. Illiquid holdings carry wider bid-ask spreads, and illiquidity is a real cost even when no fee is charged.

Loss aversion

The tendency to feel losses roughly twice as intensely as equivalent gains. It is what drives panic selling, and why selling feels like relief at exactly the moment it locks the loss in.

M

Marginal tax rate

The rate applied to your next dollar of income — not to all of it. This is why a raise can never reduce your take-home pay under the income tax system.

Market order

An instruction to buy or sell immediately at the best available price. You control the timing but not the price.

MER (management expense ratio)

The annual percentage a fund charges, deducted before returns are reported so you never see a bill. Canadian equity mutual funds typically charge 1.8–2.5%; broad index ETFs 0.05–0.25%.

N

Non-registered account

A taxable investment account with no contribution limits and no shelter. Where you invest once registered room is full, and where asset location starts to matter.

Norbert's Gambit

A technique for converting CAD to USD cheaply: buy DLR on the TSX, journal the shares to DLR.U, then sell. Costs under $50 instead of roughly 1.5% at a broker. See Lesson 6.3.

O

OAS (Old Age Security)

A residency-based federal pension, $742.31 a month at 65–74 for 2026. Full OAS requires 40 years of Canadian residency after 18.

OAS clawback

Formally the OAS recovery tax: 15 cents on the dollar of net income above $95,323, fully eliminating OAS at about $154,708. TFSA withdrawals never count toward it.

Overcontribution

Putting more into a registered account than your room allows. In a TFSA it costs 1% per month on the excess for every month it remains — most often caused by re-contributing a withdrawal too early.

P

Pension adjustment

The value of benefits accrued in a workplace pension, subtracted from your RRSP room so the same retirement saving is not sheltered twice.

Pension income splitting

Allocating up to 50% of eligible pension income to a spouse on your tax returns. From 65 this includes RRIF withdrawals, and it can pull one spouse below the OAS clawback threshold.

Power of attorney

A document appointing someone to act for you if you become incapable — separately for property and for personal care. Arguably more likely to be needed than a will, and often forgotten.

Probate

The court process confirming a will and the executor’s authority. Costs vary sharply by province: roughly 1.5% in Ontario, capped at $525 in Alberta, and not required for a notarial will in Quebec.

R

RDSP

The Registered Disability Savings Plan, for Canadians eligible for the Disability Tax Credit. Grants match at up to 300%, plus a bond requiring no contribution — the most generous and least-used program in Canada.

Real return

Return after inflation — the only version that buys anything. Real return = (1 + nominal) ÷ (1 + inflation) − 1.

Rebalancing

Restoring your target allocation by trimming what has grown and adding to what has lagged. It is a risk control rather than a return booster, and new contributions can do the job without triggering any tax.

Recency bias

Weighting recent experience too heavily when forecasting. It is why the most new money reliably flows into whatever just went up the most.

Registered account

An account with special tax treatment registered with the CRA: TFSA, RRSP, FHSA, RESP, RDSP. Each has its own rules, limits and purpose.

RESP

A Registered Education Savings Plan. The shelter matters less than the 20% CESG grant, which is a guaranteed return nothing in markets can match.

Risk capacity

How much loss your circumstances can absorb — time horizon, income stability, dependants. Factual, and it sets the ceiling on your allocation.

Risk tolerance

How much loss you can sit through without selling. Emotional, and it determines what you actually hold when markets fall.

RRIF

A Registered Retirement Income Fund. An RRSP must convert to one by the end of the year you turn 71, after which a rising minimum percentage must be withdrawn and is fully taxable.

RRSP

A Registered Retirement Savings Plan. Contributions are deductible and withdrawals fully taxable, so it profits you only when your rate at withdrawal is lower than at contribution. Room is 18% of prior-year earned income to $33,810 for 2026.

RRSP meltdown

Deliberately drawing down an RRSP during low-income years before CPP and OAS begin, paying 20–25% instead of the higher rates that forced RRIF minimums would later trigger.

S

Savings rate

(After-tax income minus all spending) divided by after-tax income. The single most useful number in personal finance, and it outruns investment returns for roughly the first three decades.

Sequence-of-returns risk

The risk that poor returns early in retirement do disproportionate damage, because withdrawals during a decline sell units that never participate in the recovery. Identical returns in a different order can be the difference between running out and finishing comfortably.

Settlement (T+1)

The transfer of ownership and cash one business day after a trade. It determines when sale proceeds are withdrawable, and it means the last useful tax-loss selling date is a day or two before December 31.

Spousal RRSP

An RRSP owned by the lower-earning spouse and contributed to by the higher earner, who claims the deduction. Withdrawals within three years of a contribution are attributed back to the contributor.

Stress test

The requirement to qualify for a Canadian mortgage at the greater of your contract rate plus 2% or 5.25%, rather than the rate you will actually pay.

Successor holder

A spouse or common-law partner named to take over a TFSA on your death. The account transfers intact with its tax-free status preserved and uses none of their own room — unlike a mere beneficiary.

Superficial loss

A denied capital loss, triggered when you or an affiliated person — including your own RRSP or TFSA — buys the identical security within 30 days before or after the sale and still holds it.

Systematic risk

Market-wide risk that diversification cannot remove: recessions, rate shocks, wars. It is compensated, and it is why equities have an expected return at all.

T

T1135

The foreign income verification form, required when specified foreign property in taxable accounts exceeds $100,000 of cost. Registered accounts are exempt; the penalty for not filing starts at $25 a day.

Term (mortgage)

The length of your current mortgage contract, usually five years in Canada, inside a much longer amortization. At the end of each term you renew at whatever rates then exist — renewal risk.

Term life insurance

Life insurance for a fixed period, cheap because it covers only the years when your death would be financially catastrophic for others. Right for the large majority of situations.

TFSA

A Tax-Free Savings Account: no deduction going in, and nothing taxed on growth or withdrawal. $7,000 for 2026, $109,000 cumulative since 2009. Withdrawals restore room only on January 1 of the following year.

Trailing commission

The portion of a mutual fund’s MER paid to the advisor or branch that sold it. A major reason Canadian retail fund fees have stayed among the highest in the developed world.

V

Volatility

How much an investment’s price moves. It is the price paid for higher expected returns rather than a defect — if equities never fell 40%, they would not be priced to return 5–7% real.

W

Withholding tax

Tax deducted at source before you receive income. The US withholds 15% of dividends paid to Canadians: exempt in an RRSP, creditable in a taxable account, and permanently lost in a TFSA.

Y

Yield

Annual income from an investment as a percentage of its price. A high yield is not automatically good — it can reflect a falling price rather than a generous payout.